Dollar Remains King Despite Global Central Bank Juggling Act

22 Mar 2024 , 10:27 AM

The U.S. dollar appeared poised for a second consecutive week of widespread gains on Friday, maintaining its strength despite a rate hike in Japan, as investors perceive U.S. rates as relatively high and stable for now.

The Swiss National Bank’s unexpected interest rate cut was the standout event in a week packed with central bank meetings. This move, prompted by the strength of the franc, caused the currency to weaken notably against the dollar and the euro.

In contrast, the Bank of Japan’s historic policy shift away from negative short-term rates and longer-run yield caps had been well anticipated, leading to a decline in the yen, which hovered near multi-year lows against the dollar.

The U.S. Federal Reserve chose to keep its funds rate unchanged this week and maintained its projections for three rate cuts by the end of the year. However, it emphasized the need for more confidence in sustainable inflation before taking action.

While market expectations for U.S. rate cuts rose slightly following the Fed’s statement, the overall level of anticipated cuts remains significantly lower than earlier in the year. This shift has contributed to renewed support for the dollar in currency markets.

The dollar’s strength was evident against the yen, with the dollar/yen pair up by 1.6% for the week, nearing levels that prompted Japanese intervention in 2022. Investors are now exploring alternative currencies to buy, attracted by the yield differentials.

Euro/yen reached its highest level since 2008, while the Australian dollar surpassed 100 yen for the first time since 2014. Against the euro, the dollar held steady within a year-long range.

Sterling weakened following the Bank of England’s decision to leave interest rates unchanged, contrasting with earlier expectations for a hike supported by two hawkish committee members.

The Australian and New Zealand dollars moved in opposite directions this week, with New Zealand slipping into a technical recession while Australian jobs data showed significant growth.

Bitcoin experienced its sharpest weekly decline since January, reflecting a broader retreat in crypto markets after a strong rally earlier in the week.

Overall, currency movements in Asia remained subdued, with the yen showing no major reaction to mixed Japanese inflation data, while retail sales figures from Britain and Canada were awaited later in the day.